Investors’ thumbs-up for China reforms as stocks rally

Key onshore China stock indexes rose the most in more than two months, while China shares listed in Hong Kong were heading for their biggest daily percentage gains in almost two years in high volume trade.

A reported record spike in home prices last month underlined, however, the challenges faced by China’s new leadership in charting a steady course for the world’s second-largest economy and the urgency of tackling some of its inherent imbalances.

The initial outline published early last week at the end of a four-day plenary session of China’s top leadership disappointed markets with its lack of detail and ambiguity, but a more elaborate account released on Friday won praise for its ambition and scope.

Leaked documents already sparked buying of mainland stocks on Friday and that rally picked up yesterday.

Still, UBS equity analysts said the real test would be whether Beijing turns its words into action so that the initial market euphoria would translate into sustained market gains.

“Our answer is optimistic,” they said in a client note. “We expect the newly created central leading group of reform to deliver tangible progress within 12 months, and thus turn bullish on 2014 China market outlook.”

The CSI300 of the leading Shanghai and Shenzhen A-share listings closed up 3.3 per cent, while the Shanghai Composite Index ended 2.9 per cent higher – their biggest gains in more than two months.

Hong-Kong’s index of mainland China stocks rose more than 5 per cent to its highest level in six months. It was heading for its strongest daily percentage rise in close to two years.

Besides plans to give markets a decisive role in key areas such as resource pricing or finance, the reforms also included steps to boost China’s urban population.

Beijing considers helping millions move to cities as an essential part of a transition to economic growth that is more balanced, less investment-intensive and more consumption-driven.

The easing of the one-child policy has already buoyed shares of stroller maker and distributor Goodbaby International and dairy products makers Mengniu Dairy and Yashili International.

Chinese brokerages and insurers saw some of the biggest gains after the central bank governor pledged soon after the reform details were released to “pull out all stops” to deepen financial sector reforms. China’s biggest-listed brokerage Citic Securities jumped more than 12 per cent and was heading for its biggest daily percentage gain on record.